After I added a new bank account and removed the old one, PayPal needed to verify my identity - specifically, they asked for my SSN and a photo ID showing my current address. I don't have an ID with my current address, so I kind of ignored their request for a while, since the only limitation on my account was that I couldn't add money (but it could still pull from my bank account or charge to my debit card).
Eventually I realized that getting a new ID would be a gigantic hassle I didn't want to deal with, so I decided to send them a photo of the old ID, plus proof of my new address and a photo of my Social Security card. They accepted the first two documents, but wouldn't accept the Social Security card, so I tried to take a clearer picture and tried again.
They accepted the second picture, and the Resolution Center page showed that I had taken all the necessary steps to resolve the problem... but my account was still limited. Multiple attempts to contact support about the problem only got me a bunch of form e-mails about how to change my address, and I really didn't want to call them, so I gave up and continued using my limited account.
Yesterday I had to use PayPal for something and I decided to try once more to resolve the problem while I was there. I sent in another support request and got another form letter about changing my address, which I responded to to clarify the problem.
Their response was to lock down my account for fraud.
TL;DR: PayPal wants proof that I am who I claim to be and places limits on my account until they can confirm my identity. I send them the requested documentation. The web site shows that the issue is resolved satisfactorily, but my account is still limited. I try to contact them for an explanation, but the only answer I get is a form answer to a different question. When I try to contact them again, they lock down my account due to fraudulent activity.
The issue here isn't that my account was limited, but that they accepted the documents I gave them, didn't actually remove the limitations, and then locked down my account when I tried to ask why.
I guess I should be glad they locked down my account after I used it to help my brother make rent. /: